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Competition, Weather Take Pratt By Surprise

Posted on: October 18th, 2007

Last week Maurice Pratt, somehow still in command at C&C, came out of hiding to soothe the market in C&C shares. The interim results were brutal. Pratt headed for RTE’s Morning Ireland. He was desperately hoping to put a brake on the slide.

The disaster in cider sales was due to the “awful summer we had in both Britain and Ireland“. Shareholders have been hearing this excuse for months. “Clearly cider is a product which eh, eh, has a high dependency on, em . . . good weather and performs much better when weather is good. Em . . . when the weather is bad, eh, it also, eh, suffers . . .”

What a waffler. Cider needs sun.

So why in the name of God did C&C waste so much money doubling its cider production capacity after a bumper 2006 of freak heatwaves? It bet the bank on sunny weather in traditionally wet countries. Quite a tall order. The scorching summer of 2006, just as much as the wet summer of 2007, was an aberration. Maurice thought that the heatwaves would be repeated annually. C&C budgeted accordingly.

Perhaps he did not consult the Met in Malin Head where 2006 was recorded as the warmest summer since records began. On the same dismal day the C&C boss flew another flier. He admitted that “the competitive threat was more potent than we expected.” Shareholders shuddered.

What a euphemism. Maurice must have foreseen a world without rivals. And with a good whinge at its emerging enemy Scottish & Newcastle, C&C’s interim statement confessed that its market share in the UK cider over ice market had plunged from 100 per cent to 76 per cent. One hundred per cent? How come?

Precisely. C&C was a genius at operating a monopoly. It had a year of good weather and no competitors. So it spent shareholders’ cash as though it would enjoy good weather and 100 per cent of the cider market eternally. Inexplicably, what Maurice dismissed as “heavy price-led competition”, took the company by surprise.

Maurice nearly suffered a seizure when Scottish & Newcastle underpriced him in the cider market. C&C buckled under the first pressure. What an unfriendly move by Scottish & Newcastle.

Next, Maurice struggled to reassure shareholders by insisting that C&C would now “sharpen its competitive capability.” Without cutting prices, mind you! Lay off a few workers instead. Is this the man who has lost tens of millions gambling shareholders’ funds on a futile share buyback programme?

And in a final desperate throw of the dice, Maurice protested that he was seeking the sun in Barcelona and Munich.

Under pressure, he admitted that this experiment was a “slow burner.” Shareholders hit the “sell” button. In the first two days after Maurice sought to reassure the market, the price of C&C shares plunged from €6.03 to below €5.00 – a drop of over 16 per cent. They have already dropped by 64 per cent this year.